Stiglitz – ‘Creating a Learning Society,’ and the Implications for Industrial Policy

Joseph Stiglitz: ‘Creating a Learning Society,’ and the Implications for Industrial Policy

By Ivan Rossignol – October 2, 2013

The World Bank Blog

The first World Bank Competitive Industries conference on “Making Growth Happen” is just two weeks away. There’s been a thrilling addition to the impressive roster of speakers: A Nobel Prize-winning economist, Professor Joseph Stiglitz of Columbia University, has agreed to deliver one of the keynote addresses on Wednesday, October 16.

What makes this particularly exciting is that Stiglitz – a former Chief Economist of the World Bank – will talk to us not only about his prior work, but will be giving us a taste of what’s coming next. His forthcoming book, co-authored with Bruce Greenwald, Creating a Learning Society: A New Approach to Growth, Development, and Social Progress, promises to hold a wide range of policy implications.

In anticipation of the talk, and judging by his analyses on his website, I thought I’d share some of my reflections on this theme in Stiglitz’s work and on its relevance for us – as well as some questions that I hope we will tackle during the conference.

Stiglitz starts from the seminal results of Robert Solow and Kenneth Arrow, deriving from them that the most important source of growth is knowledge. The acquisition and diffusion of knowledge – social learning – is thus not just any public good: It’s the most important of them.

It’s also the public good that’s subject to the greatest market failures, with the most externalities and resulting gaps between social and private returns. Because individuals (and firms) don’t capture the full returns from their investment in learning, learning is generally under-produced. And because knowledge builds atop knowledge, this underproduction compounds over time. On the other hand, as Arrow’s work on “learning by doing” showed, once learning starts it can be built dynamically and at scale.

The dynamic nature and effects of learning can then far outweigh any short-term static losses in efficiency. So the question Stiglitz challenges us to ask is not, “What can an economy produce today?” but “What can it learn to produce?” and “What production processes can catalyze learning in other sectors?”

This is where he finds a link to industrial policy, and where the implications occur for our work with country partners on Competitive Industries initiatives. Stiglitz argues that some sectors – manufacturing, above all – have greater learning spillovers than others. That fact justifies shaping policies to promote them over others.

He also notes that all policies do this: He argues that even capital market liberalization, if it increases volatility, discourages learning in the tradable goods sector, and is therefore a species of industrial policy. This is just one of the controversial conclusions that he draws (a conclusion, by the way, that was echoed by Dani Rodrik in his talk to the Planning Commission of India in 2011). Another insight, published several years ago, is his motivation for “infant economy” protection, in which broad tariff protection can promote learning, particularly in low-income economies.

To my mind, the question for us in the World Bank Group is: How do we help our clients build such learning societies, so that it has a positive impact on job creation? If volatility is a threat to learning, and if the world economy is set for even more volatility, how do we help our clients shape policies that can preserve the capabilities that have been learned over the last few years? As he himself mentions repeatedly, if all learning is local – and if all learning is shaped by local politics and institutions – how do we avoid one-size-fits-all ways of learning?

Most of all, what does this mean, concretely, in the regions where we work? To name just a few of our counterparts, what does it mean for Haiti, Sierra Leone, Cote d’Ivoire, Tunisia, Vietnam and India?

Moreover, what does this mean in the developed world, in such countries as the United States? The conference’s other keynote speaker, Don Graves, reports directly to President Obama on precisely these topics – and he has just been asked by the President to lead the federal effort to revive the city of Detroit. As a counterpoint to Professor Stiglitz, he will be sharing a practitioner’s perspective, and the rich and nuanced story of collaborative governance behind the White House Council on Jobs and Competitiveness.

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